MicroStrategy’s Bitcoin stash at risk? Analyst warns

Bitcoin’s (BTC) bullish race to hit $100K post-US Presidential elections got the crypto industry excited but on the other hand, it has also flagged liquidation risk for some pro-BTC firms ahead. Microstrategy (MSTR), which has decided to go heavy on the biggest crypto is expected to face a similar danger.

Michael Saylor, former CEO of Microstrategy, announced that the company’s treasury operations had delivered a BTC yield of around 12.3% last week. He added that the firm managed to provide a net benefit of 40,738 BTC to their shareholders. This comes in when Bitcoin price surged by 35% in the last 30 days to hover around $96k.

MicroStrategy’s bold Bitcoin bet

Crypto analyst Willy Woo has highlighted potential risks to MicroStrategy’s Bitcoin strategy in his latest post. He focused on the company’s convertible debt. He suggested that if debt holders do not convert to shares before maturity then it will force MSTR to sell its Bitcoin in order to reimburse debt holders.

Woo mentioned that this could happen if MicroStrategy’s share price doesn’t pump more than 40% and that too in 5 to 7 years. However, it will vary as per each bond. The analyst implies that either MSTR correlation to BTC needs to fail or BTC needs to fail. 

Woo had warned that competitors that are trying to mimic MicroStrategy as it could erode its net asset value premium. Other risks include potential SEC-forced restrictions on Bitcoin purchases and even US government confiscation of crypto assets.

This comes in when the investment adviser Gary Black claims MSTR’s shares are overvalued by 73%, estimating fair value at $105. MicroStrategy’s share price is up by a huge 668% in the last year, it was traded at an average price of $388.84 in the last session.

Bitcoin’s recent upward run has boosted all the related markets with it. BTC price is up and running by 126% on a year-to-date basis (YTD). It went on to hit a fresh all-time high (ATH) of over $99,600 on November 23, 2024. The biggest crypto is trading at an average price of $95,700, at the press time. Its cumulative market cap is now moving toward the $2 trillion mark.

Is it a debt trap?

The application software vendor firm had decided to tie up its fortunes with the biggest crypto but this move can prove to be a generating debt load. As per its last quarter filings, the firm reported a debt of $4.56 billion. It recently completed the issuance of another $3 billion in senior convertible notes due 2029 at a 0% interest rate which now brings its total debt to over $7.56 billion.

MicroStrategy’s “21/21 Plan” is a bold experiment in corporate finance where raising $42 billion to acquire 500,000 BTC sounds very ambitious. They’re not just buying Bitcoin, they’re doubling down on its future as a corporate treasury asset.

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